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Opinion | Time is ripe for an e-commerce regulator in India

Both Amazon and Walmart-owned Flipkart are non-Indian and could be categorised as foreign players, answerable primarily to their global shareholders. This structure leads to the potential risk of these companies viewing India purely as a market and ‘investment-on-demand’ basis

June 17, 2021 / 12:29 PM IST

On June 11, the Karnataka High Court gave permission to the Competition Commission of India (CCI) to look into the alleged anti-competitive practices by Amazon and Flipkart, the two biggest e-commerce marketplaces in India. This essentially leads back to the October 2019 complaint by a group representing small and medium business (MSME) owners alleging both the companies of anti-competitive practices, predatory pricing and preferential treatment of sellers by these companies on their platforms. CCI started a probe in January 2020 but had to stop following a court order in February 2020.

Growth of E-Commerce

Although, technically, e-retailing has existed in India since the early 2000s, the boom for the industry began in 2010-11 when private groups started investing in Indian e-commerce companies that were then small technology start-ups. The investor ecosystem fuelled the rampant growth of the industry, and at its peak in 2012-13, there existed 1,732 e-commerce companies in India.

Active e-commerce users grew from 26 million in 2010 to over 100 million in 2020. During the pandemic-led lockdown both last year and this year, Indian retail consumers depended significantly on e-commerce players, with the latter even being categorised as an ‘essential service’. The last decade also witnessed significant consolidation of players, closure of many businesses, and increased investments and acquisitions by the leading players.

The Indian e-commerce industry has come a long way in the last decade. The industry has witnessed its share of ups and downs that contribute to a typical growth cycle, leading to a steady state. In comparison, the mobile telecom industry which started its user growth in 2000-01, witnessed an active involvement of its regulator — TRAI (Telecom Regulatory Authority of India) — and a number of policy introductions around 2009.

Close

Timing and growth stage-wise, the Indian e-commerce industry is also ripe for its dedicated regulator. Currently, the e-commerce sector is governed by multiple ministries and government agencies. A number of consumer and seller/retailer issues and grievances are loosely handled and most of them end up in courts. A dedicated regulator for e-commerce would be able to reduce the load on multiple agencies and the judiciary with respect to this sector.

A Strong Regulator

In the Indian mobile telecom space, forbearance — allowing market conditions (supply and demand) to play out, had resulted in the exponential growth of the sector, with multiple players entering and growing profitably while the end consumers benefited from the products and services which are priced at among the lowest in the world. Mobile telecom was a demand-led growth and the supply side players just had to innovate and optimise their offerings and cost structures to be profitable.

Comparatively, the e-commerce industry growth was primarily supply-side investments led, with negative unit economics. This led to the ‘survival of the most-invested’ in this market, and eventually became a two-player market. Both these companies — Amazon and Walmart-owned Flipkart — by ownership are non-Indian and could be categorised as foreign players, answerable primarily to their global shareholders. This structure leads to the potential risk of these companies viewing India purely as a market and ‘investment-on-demand’ basis.

E-commerce players acting as digital intermediaries between retailers and consumers have a diluted obligation to their stakeholders as compared to their shareholders. This is a scenario that could be potentially corrected by a dedicated regulator for the sector. We have already witnessed the capitalistic ethos resulting in major uproar against Amazon eating up small businesses in the developed world, and its founder-CEO becoming the world’s richest man. With the pandemic moving the needle in favour of and bringing the spotlight on ‘Stakeholder Capitalism’ in which all the key stakeholders thrive instead of ‘mindless growth of a key value chain player’, there is a growing need for ‘ecosystem builders’ in every industry. In some of them, strong regulators could help bring about this change.

Data Economy

As emerging deep technologies, such as Advanced Data Analytics, Machine Learning and Artificial Intelligence, become mainstream, the digital marketplaces (primarily e-commerce platforms) become extremely powerful in terms of profiling their consumers and controlling their seller partners. Apart from the obvious upselling and cross-selling of adjacent products and services in order to increase their revenues, these platforms track and analyse many more preferences and deduce behaviours of their consumers, thereby building and continuously improving the accurate profile of their users.

Over a period of time, this data, its access and handling provides tremendous power and undue influence and competitive advantage to the companies mining it. Apart from data privacy, which is regulated by a separate data policy, even the access and ensuring uniform empowerment and level playing field is something a dedicated e-commerce regulator could bring in and uphold in India.

Disclosure: Moneycontrol is part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.
Jayanth Kolla is Partner, Convergence Catalyst. Views are personal.
first published: Jun 17, 2021 12:25 pm

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